George Osborne told to bring in flat tax to help middle income families

George Osborne is being urged to bring in a simple flat tax system after it
emerged that some middle income families are paying an effective rate of 73
per cent because they have been stripped of their child benefit.

Simon Walker, the director general of the Institute of Directors, said that such large “marginal” tax rates on hard pressed families who are struggling to make ends meet “degrades the motivation to work”.

The Chancellor of the Exchequer scrapped child benefit for households where the highest earner has a salary of £60,000 or more in last year’s Budget.

Households with someone earning between £50,000 and £60,000 lost an increasing proportion of the benefit under the change that came in on January 7 this year. Higher earners who have recieved it had until last Saturday to register with HMRC or face a fine.

Experts said the withdrawal of the benefit means that a single earner in a family of six earning within these two sums with a “marginal tax rate” of 73 per cent.

This is calculated by working out the value of losing the child benefit and treating its loss as though it was a tax.

Mr Walker told Murnaghan on Sky News: “This is a huge disincentive as it is for beneficiaries on the lowest wages – some of them can be paying 70 per cent, 75 per cent.

“I would like to see that there is a level above which the tax take should never rise, so you should never pay more than 50p on the pound you bring in. If you are doing that you are doing something that is wrong and that degrades the motivation to work.

“I am all for a flat simple tax system – it has been shown to raise a lot more money. “The top one per cent of taxpayers pay 15 per cent of all the tax in this country. Flat, simple taxes are the way to do it.”

Richard Mannion, the national tax director at Smith & Williamson, said the rate was effectively higher than those on three times their salary

He said: “The effective tax charge for middle income earners means their marginal tax rate is far higher than for people earning in excess of £150,000 per year.

“In fact, those earning between £50,000 and £60,000 per year face a marginal tax rate of 52 per cent for couples with one child, and as much as 73pc if the couple has four children.

“In my view, this could not be described as a fair system. Merging child benefits in with the tax system might sound like a sensible idea, but the reality is that it will doubtless lead to difficulties.”

Child benefit is worth £20.30 per week for the first child and £13.40 per week for each subsequent brother or sister. Affected families have lost an average of about £1,300 per year.